Auditing and Assurance Standards Oversight Council
Minutes of Meeting
April 20, 2017
The Auditing and Assurance Standards Oversight Council discussed the activities of the AASB. AASOC confirmed that the AASB approved the auditor reporting standards and its Operating Plan for 2017-2018 in accordance with due process and with proper regard for the public interest. As part of its monitoring responsibilities, AASOC also received reports on the activities of a number of domestic and international organizations.
|Chairman:||Bill McFetridge / Bruce Winter|
Darrell Jensen, AASB Chair (non-voting)
Ron Salole (non-voting)
Eric Turner, Director, Auditing and Assurance Standards (non-voting)
|Regrets:||Stephenie Fox, Vice-President, Standards (non-voting)
Brian Hunt, (non-voting)
Karen Stothers (non-voting)
Michael Tambosso, Independence Task Force Chair (non-voting)
|Guests:||Kenneth Leung, OSFI
Fred Pries, AASB Vice Chair
Chairs' Opening Comments
Activities of the AASB Since the Last AASOC Meeting
Comments from AASOC Observers
Report of the Quality Assurance Committee
Review of the Effectiveness of the Oversight Councils
Activities of CSA, IAASB, IFAC, OSFI and PIOB
Other Administrative Matters
Bill McFetridge and Bruce Winter welcomed everyone to the meeting and introduced the new AASOC members, Ian Bandeen, Kathryn Bewley, Donna Bovolaneas, Kevin Dancey, Sheila Filion, John Walker and Bruce West. They noted that, as agreed to by all AASOC members, Mr. McFetridge would act as Chair until after the discussion of the AASB’s due process over the approval of the new and revised auditor reporting standards. At that point, Mr. Winter would assume the role of Interim Chair. Similarly, the outgoing AASOC members will be asked to vote on the AASB’s due process. After this vote, the incoming AASOC members will assume their responsibilities.
Recognition of Departing AASOC Members
Mr. Winter and Mr. McFetridge acknowledged the contributions of the AASOC members whose terms expired, specifically Jean Bédard, Susan McIsaac, Stan Pasternak and Mike Volker. These members each served two consecutive terms, for a total of six years, and sat on several of AASOC’s committees. Mr. Winter also thanked Mr. McFetridge for his contributions as a member and Chair of AASOC for the past seven years.
The Minutes of the meeting held on February 16, 2017 were approved subject to a minor change.
Darrell Jensen, Fred Pries and Eric Turner presented an overview of the activities of the AASB. They noted that a number of matters were discussed at the AASB’s March and April 2017 meetings, including the following:
AASOC considered the AASB’s decisions relating to the approval of the new and revised auditor reporting standards and related conforming amendments, which the AASB unanimously approved on its April 11, 2017 conference call.
Mr. Jensen provided background on the process followed by the AASB in approving these standards, which included:
- issuing an Invitation to Comment on the International Auditing and Assurance Standards Board’s (IAASB) June 2012 Invitation to Comment, “Improving the Auditor’s Report;”
- issuing an Exposure Draft of the proposed auditor reporting standards in September 2013; and
- issuing an Invitation to Comment, “Implementation Considerations for New Auditor Reporting Standards,” in June 2015.
The AASB also conducted a significant amount of consultation with stakeholders throughout the various stages of the project.
Mr. Jensen noted that the U.S. Public Company Accounting Oversight Board (PCAOB) has not completed its process to develop auditor reporting standards. He noted that the AASB is committed to adopting International Standards on Auditing. However, a large number of Canadian companies also file financial statements in the United States. Stakeholders have expressed concern that a jointly Canadian/SEC listed entity could have different requirements to include key audit matters in some reports and not in others, which could cause confusion among financial statement users who may not be fully apprised of the audit reporting differences between the two jurisdictions. Because the PCAOB has not yet issued its final standards, the AASB has made an amendment in adopting the International Standards on Accounting (ISAs). The Canadian Auditing Standards (CASs) will not require auditors to report on key audit matters in auditor’s reports for listed entities. Key audit matter reporting will only be done when law or regulation requires such reporting, or if the auditor chooses to report. Once the PCAOB has finalized its proposals, the AASB will decide, in light of this and other factors, how and to what extent to require key audit matter reporting for listed entities.
Mr. Jensen noted some of the other factors the AASB will need to consider. These include that the IAASB plans to conduct a post-implementation review of the auditor reporting standards. The AASB will conduct its own research in support of the IAASB’s review. In addition, the AASB has started a project with the Australian Auditing and Assurance Standards Board to review experience with auditor’s reports issued using the new reporting standards. The AASB will also monitor experience gained in Canada by those who apply key audit matter reporting in accordance with law or regulation as well as those who apply this reporting voluntarily.
In approving the final standards, the AASB followed its normal protocol in determining whether the final revisions should be re-exposed. The AASB concluded that (a) not requiring key audit matters to be reported for listed entities, and (b) delaying the effective date for the auditor reporting standards by one year, were significant changes from that originally proposed. However, the AASB decided not to re-expose for the following reasons:
- The AASB has already consulted with respect to this revision with a number of stakeholders, including regulatory bodies. It is unlikely that further exposure would result in any new views being expressed.
- Key audit matters is only one aspect of the proposed auditor reporting standards. There are a number of other enhancements to the CASs, including auditor reporting on other information and audit of financial statement disclosures. The AASB believes that it would not be in the public interest to further delay, even for a short period, the implementation of these enhancements.
- The changes made are in direct response to comments received during the consultation process.
- There are no new requirements resulting from the change.
- The changes do not prevent auditors from either reporting key audit matters on a voluntary basis or being required to report key audit matters by law or regulation.
- The AASB’s position on key audit matter reporting is evolving and may be amended in a short period of time in light of new information, as discussed above.
Following this discussion, the AASOC members voted on a motion as to whether the AASB approved the new and revised auditor reporting standards and related conforming amendments in accordance with due process and with proper regard for the public interest. Bruce Winter recused himself from the vote, as he had been a member of the IAASB when it developed and approved the auditor reporting ISAs. One AASOC member, Jean Bédard, expressed the view that the AASB should have re-exposed the change to not require key audit matter reporting for listed entities. Mr. Bédard stated that, in his view, re-exposure would provide an opportunity for investors to give their views on whether this change is appropriate. Other AASOC members agreed with the AASB’s decision that re-exposure was not necessary, for the reasons set out by Mr. Jensen above and that issuing the standards as soon as possible is in the public interest. One member stated that he would not support a motion by AASOC to ask the AASB to reconsider its decision regarding re-exposure, for the reasons set out by Mr. Jensen.
The voting members present at the meeting voted in favour of the motion whether the AASB approved the standards referred to previously in accordance with due process and with proper regard for the public interest, with the exception of Mr. Winter, who did not vote, and Mr. Bédard, who voted against the motion. As a result, the motion passed.
Following this vote, the Chair of AASOC passed from Bill McFetridge to Mr. Winter. The AASOC members whose terms were ending also passed voting rights to the incoming AASOC members.
AASB Operating Plan 2017-2018
The AASB assessed its performance for 2016-2017, concluding that it had a successful year, achieving, and in some cases exceeding, the key objectives in its 2016-2017 operating plan. The AASB:
- had great success with stakeholder engagement, holding several outreach sessions with key stakeholders;
- continued to be a strong participant in global standard setting;
- made improvements to AASB processes, including obtaining approval for a compensated AASB Chair and establishing a Steering Committee;
- continued to set high-quality and relevant standards in the public interest; and
- started a joint project with the Australian Auditing and Assurance Standards Board to conduct research into auditor reports issued using the new international auditor reporting standards.
Mr. Jensen reported that the AASB achieved the key objectives in its 2016-2017 operating plan and is on its way to achieving long-term goals established in its Strategic Plan for 2016-2021.
Mr. Jensen said that the AASB considered input from the AASOC’s Strategy Committee on the 2016-2017 performance assessment as well as the Operating Plan for 2017-2018. The AASB approved its Operating Plan for 2017-2018 by email ballot in early April 2017. Susan McIsaac said that the Strategy Committee received drafts of AASB agenda papers in advance of AASB meetings and held a conference call to discuss final draft material.
Following this discussion, voting members of AASOC present at the meeting unanimously agreed that the AASB followed due process in preparing the Operating Plan for 2017-2018.
Staff and an AASB member conducted cross-country consultations to obtain feedback on the Compilation Engagement Task Force’s discussion paper. The AASB discussed feedback received on the following key areas:
- The scope of the standard, including concerns that the change being considered would move many existing compilation engagements to accounting engagements, for which there are no standards. Further, accounting engagements are not regulated by the provincial bodies. Participants in the consultations expressed the view that such change may not be in the public interest. The AASB observed that creating an additional level of engagement to address accounting engagements, as done in the U.S., could add to confusion in the marketplace. The AASB did not conclude on this issue.
- The wording and format of the proposed practitioner’s report, including whether such changes would result in users taking assurance when none is provided. The AASB agreed that the wording of the report should reflect the value of a compilation engagement, which results from the practitioner assisting management in preparing and presenting financial information, and involves compliance with professional standards, including ethical requirements.
- To what extent, if any, quality control standards should apply to compilation engagements. Participants in the consultations expressed significant concerns around the application of quality control standards. The AASB has not yet discussed this issue.
Public Sector Auditing Standards
The AASB discussed issues related to its project to update the Sections in the CPA Canada Handbook – Assurance dealing with the special circumstances that may apply to the audits of public sector entities. The AASB approved an exposure draft of a new guideline that will address reporting on compliance with specified authorities for transactions coming to the auditor’s notice during the audit of the financial statements. The exposure draft is expected to be issued in May 2017 and will have a response deadline of August 28, 2017. The AASB staff will conduct targeted consultations with legislative auditors, the expected primary users of the guideline, during the summer of 2017.
The AASB discussed issues related to the IAASB’s projects on:
- auditing accounting estimates;
- audit risk; and
- quality control.
The IAASB approved an Exposure Draft on auditing accounting estimates at its March 2017 meeting. The AASB has not identified any specific Canadian circumstances that would require amendment to the ISA. The AASB unanimously approved a Canadian Exposure Draft at its April 11, 2017 conference call.
The IAASB is discussing issues related to its audit risk and quality control projects. The AASB is obtaining input from a number of sources, including Canadian advisory groups, and providing input to the CPA Canada nominee on the IAASB.
Strategic Plan Implementation
The AASB discussed topics related to the implementation of its Strategic Plan for 2016-2021.
The AASB conducted the following stakeholder engagement events:
- The AASB co-hosted an event with the Canadian Public Accountability Board (CPAB) and the Canadian Financial Analyst Society. The objective of the event was to understand investors’ issues to inform broader discussion about the future of assurance. Both buy-side and sell-side analysts attended the event. The AASB staff and CPAB are conducting one-on-one follow-up interviews with participants. In addition, the Chairs and Vice Chairs of the AASB and the Accounting Standards Board will discuss the input received and potential implications on the activity of the Boards in late March 2017. The AASB will discuss a next steps at its June 2017 meeting.
- The AASB is holding its October 2017 meeting in Vancouver, and will include outreach with local stakeholders. The AASB discussed which stakeholder groups would be targeted and the possible topics to be covered during outreach. The AASB staff will conduct discussions with potential participants to identify topics that will be of interest to both participants and the AASB.
The AASB also discussed developing a framework for post-implementation reviews. Using this framework, the AASB plans to conduct a pilot review. The AASB has not yet selected a topic or timeframe for such review. However, the AASB concluded that the scope of the pilot review should be narrow, and the review conducted over a short timeframe. The output of the initial review will help the AASB to identify improvements to the review process.
AASB Compensated Chair Search Process
AASOC discussed its role in recruiting a compensated AASB Chair. The Accounting Standards Oversight Council (AcSOC) has conducted similar searches for both the Accounting Standards Board and the Public Sector Accounting Board. AASOC reviewed AcSOC’s process and decided to follow a similar process. AASOC also decided that the Nominating Committee will oversee the process.
Project Progress Report
AASOC reviewed the AASB’s project progress report. AASOC had no comments on this document.
AASOC reviewed written reports from Carol Bellringer and Bill McFetridge, who observed the AASB’s March and April 2017 meetings on behalf of AASOC. The observers noted no significant issues regarding due process and the consideration of the public interest by the AASB.
AASOC accepted the observer reports as presented.
Bruce Winter and Phil Cowperthwaite presented the Quality Assurance Committee’s report on AASOC’s oversight activities for the period from April 1, 2016 to March 31, 2017. An AASOC member asked whether the Committee should include any recommendation regarding the Independence Task Force, which had no meetings during the year. Mr. Winter stated that the report will be revised to note that there was limited activity, but AASOC does not have any concerns. The revised report will be circulated to AASOC for approval offline.
Bill McFetridge provided an update on a joint subcommittee established to review the effectiveness of AASOC and the Accounting Standards Oversight Council (AcSOC). The subcommittee met in April 2017 to review a detailed comparison of the Terms of Reference of both Councils. The subcommittee’s goal is to conform the Terms of Reference where possible. This review will help the Councils discuss their differences and determine whether changes should be made to how the Councils operate.
Canadian Securities Administrators (CSA)
Cameron McInnis noted the following:
- The CSA will start a project to establish rules over the use of non-GAAP financial measures. The CSA has a staff notice that sets out what staff expect companies to do in order to not present misleading information, but not all companies fully comply with staff’s expectations. The CSA will conduct outreach in developing the draft rule, then will expose the rule for public comment.
- The CSA has consulted with a number of stakeholders on audit committee disclosures. There has been mixed reactions from these consultations. The CSA is deciding whether to continue with a more formal consultation paper.
- The CSA has started a project to consider how it can reduce the regulatory burden on non-investment fund reporting issuers. The Ontario Securities Commission also has a similar project for investment fund reporting issuers.
- The CSA has started a project to gather information about how companies are providing climate related disclosures. The Financial Stability Board will be releasing a final report with recommendations in this area in the summer of 2017.
International Auditing and Assurance Standards Board (IAASB)
Ron Salole noted the following regarding a March 2017 meeting of the IAASB:
- The IAASB approved an Exposure Draft of ISA 540 (Revised), Auditing Accounting Estimates and Related Disclosures. The revisions:
- enhance requirements for risk assessment procedures to include specific factors related to accounting estimates, namely complexity, judgment, and estimation uncertainty;
- set a more detailed expectation for the auditor’s response to identified risks related to accounting estimates, including augmenting the auditor’s application of professional skepticism; and
- are scalable regardless of the size or sector of the business or audit firm.
- The IAASB is updating ISA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment, to:
- provide more clarity on the use of data analytics in an audit and other information technology issues;
- clarify the extent of work effort on controls relevant to the audit, including distinguishing between the control environment and control activities; and
- propose having a separate identification and assessment of inherent and control risk, rather than a combined or simultaneous risk assessment.
- The IAASB discussed the criteria for selection of the engagement quality control reviewer. This is one aspect of the overall project to revise standards on quality control.
- The IAASB continued discussions on scalability of the standards, including how standards can be made easier to use for audits of entities of all sizes. The IAASB noted that more implementation guidance is needed. Scalability will be considered as part of ongoing projects on quality control and group audits.
International Federation of Accountants (IFAC)
Carol Bellringer noted the following:
- IFAC is discussing enhancements to the standard-setting model, including considering whether the quality of standard setting is adequate.
- IFAC issued a report, “The Accountancy Profession: Playing a Positive Role Tackling Corruption,” that provides a snapshot of the accountancy profession’s role in the global fight against corruption.
- IFAC reappointed Arnold Schilder as Chair of the IAASB through the end of 2018.
Office of the Superintendent of Financial Institutions (OSFI)
Kenneth Leung noted the following:
- OSFI issued an advisory to life insurance companies to defer the application of IFRS 9 Financial Instruments until the expected effective date of the new IASB Insurance Contracts standard of January 1, 2021. This allows life insurers to adopt both IFRS 9 and the new standard on insurance contracts simultaneously.
- The Basel Committee on Banking Supervision is still working on reforms. OSFI plans to develop a Canadian solution on bank capital if the Basel Committee does not finalize its reforms.
Public Interest Oversight Board (PIOB)
Kevin Dancey noted the following:
- The Monitoring Group is considering possible reforms to the international standard-setting process. AASOC noted that its process has been modelled after the PIOB. If the PIOB makes fundamental changes, AASOC would likely consider whether to make similar changes.
- The PIOB received a number of responses to its Public Consultation on its 2017-2019 Strategy, and is assessing the input received.
AASOC held an in-camera session, first without staff and then without the Chair and Vice Chair of the AASB.
The next meeting of AASOC will be held on July 6, 2017 in Toronto.
There being no further matters to discuss, the meeting was terminated.